Do you want to access the full text of articles?

Please see our digital edition archive for the full text of articles.

Alternatively:

If you are a Chartered Accountants Ireland member, please visit the RIS service where Accountancy Ireland is available free of charge via the EBSCO databases.

If you are an Accountancy Ireland subscriber (i.e. you pay each year to receive your copy of Accountancy Ireland) please contact our Subscriptions Department quoting your subscription number and include details of the article you want.

All other users should enquire from their local public or college library about accessing full text Accountancy Ireland articles.

Start / ... / Disputes and Litigation - Is there an easier way?

In today's increasingly regulated and competitive commercial environment, the risk of becoming involved in commercial disputes and litigation has never been greater.

Whether as plaintiff or defendant, an involvement in any dispute requires significant commitment of human and monetary resources, and generates risk and uncertainty for the business. In the broadest terms, disputes fall into two main categories:

-Breaches of agreement entered into between contracting parties, such as: -Supply agreements -Distribution agreements -Agency agreements -Franchise agreements -Licence agreements for the use of patents and copyright

-Breaches of statute or disputes at common law where the breach affects a third party and where no contract exists between the parties to the dispute, such as: -Breach of patent or copyright -Abuse of dominant position in the market -Environmental contamination

Most companies have little or no prior practical experience or involvement in disputes. Consequently most companies are ill equipped to manage such matters as and when they arise. It is a sound maxim that one should only resort to litigation on a matter of money and not simply to vindicate a position. It is, therefore, of fundamental importance for the parties to a potential dispute to quantify the amounts in dispute at the earliest possible stage based on hard fact and available evidence. This evidence is best assessed by an experienced forensic accountant.

AVAILABLE OPTIONS Subject to legal advice to the contrary and based on the individual circumstances of each case, the parties to a dispute have a range of options open to them to resolve their dispute: -Direct negotiation -Mediation -Arbitration -Pre-trial settlement -Judicial decision

Each of the options, in descending order, add to cost in terms of management time, monetary resources and risk and uncertainty. In general terms, the requirement is for both parties to articulate and substantiate their positions to each other and endeavour to resolve the dispute. If they fail to do so directly, each step on the ladder of dispute resolution represents a greater failure on their part and abrogates responsibility to others to handle the negotiations and ultimately make a decision to resolve the dispute.

MEDIATION When parties to a dispute are appropriately informed regarding liability and quantum, they may be in a position to resolve their dispute by direct negotiation or with the assistance of a trained and experienced mediator. A mediator assists each side in articulating their position. Mediation provides the scope for more innovative commercial solutions which better suit each party’s needs and which would be unlikely to emerge from traditional litigation. Such an approach to dispute resolution is less costly in respect of: -Professional fees -Management time -Disruption to the business -Confidentiality

It also serves to resolve disputes in a shorter period of time, thus removing from management the commercial and financial uncertainty relating to the dispute itself.

Case study An international software company had a long standing distribution agreement with an Irish company. The software company sought to end the distribution agreement and set up its own distribution in Ireland. The software company offered a nominal compensation on the termination, based on its strict interpretation of the agreement. The Irish distributor also took a strong but entirely different interpretation of the agreement. This included the view that the agreement was still operational as the termination provisions had not been properly adhered to. The Irish distributor sought continuity of supply and threatened to injunct the software company if it attempted to distribute its own product or approach another distributor.

Correspondence passed between the parties' respective solicitors. However, the software company and the distributor entered direct negotiations recognising that a protracted dispute could have significant consequences for both parties. The distributor recognised the inevitability of the withdrawal of its distribution rights. The software company conceded that it had acted at least in a less than courteous manner to its long standing distributor and any litigation would harm its sales.

The matter was resolved within one month of the parties' first meeting and within a further month a seamless handover of the distribution had occurred. The Irish distributor secured a substantial settlement and there was no disruption to the software company's sales in Ireland.

ARBITRATION Many commercial agreements now include arbitration clauses as the contracting parties recognise the value of a speedy and economic resolution to disputes in circumstances where they have not been in a position to resolve their differences by negotiation. Arbitration itself is a quasi judicial process, and generally brings a binding conclusion to a dispute. The results of arbitration are not open to appeal save in circumstances of manifest error or misconduct on the part of the Arbitrator.

Arbitration clauses in commercial agreements can allow the parties to nominate an arbitrator by agreement or give the power to a third party to appoint an arbitrator to hear the arbitration. Depending on the nature of the agreement, the third party to nominate an arbitrator to hear the arbitration could be the President of the Institute of Engineers, the President of the Law Society, the President of the Institute of Chartered Accountants, the Chairman of the Chartered Institute of Arbitrators or the International Chamber of Commerce.

An arbitration could be a documents only arbitration or involve a full oral hearing and evidence taken under oath. In circumstances where no arbitration clause exists in a commercial agreement or where no written agreement exists between the parties, it is open to parties to any dispute to agree to have that matter dealt with by arbitration, if they so wish.

Case study A car importer and an overseas manufacturer had long running disagreements over the quality of cars delivered and warranty claims.

Both parties claimed the other terminated the distribution agreement and an arbitration clause in the agreement was invoked to resolve the dispute.

Following the submission of pleadings on the matter, an arbitration panel was appointed by the ICC Court of Arbitrators. The case was heard within a year and the matter resolved during the course of the hearing.

The result allowed the manufacturer to appoint a new distributor. The former distributor moved on to import another make of car and the financial issues between them were resolved, which facilitated a full disengagement between the parties.

THE COURTS Failing an amicable resolution of the dispute between the parties and in the absence of an arbitration clause, the conventional method of resolving disputes is by resort to the court system to adjudicate on matters in dispute.

The difficulty with this process is that it involves lengthy correspondence between the solicitors representing both parties and, at some stage in the process, prior to the hearing of the action, the briefing of counsel to advise on matters in preparation for its ultimate hearing by a court.

In addition to the relatively lengthy process of litigation, there is also the matter of court lists and obtaining a date for the hearing of the action. A very significant number of disputes are settled shortly prior to or on the date of the hearing of the action itself on the basis of negotiation between the parties' respective counsel. If both parties to the dispute had been in command of all the relevant information in relation to quantum and liability, matters might have been resolved at a substantially earlier date and at a lower cost.

Case study A promoter, who had established a company which subsequently failed, sued a development agency for negligence and misrepresentation regarding the availability of suitably qualified labour in the region in which the business was established. The case eventually reached the High Court and, after two weeks of hearing the Plaintiff's evidence, the action collapsed (before the defendant presented its case). It became clear from cross examination, based on the forensic accounting work commissioned by the Plaintiff that the real cause of the failure of the business was the lack of sale. Had the Plaintiff's team done their work properly, this case would never have gone to trial.

THE KEY TO DISPUTE RESOLUTION All disputes are ultimately resolved on the basis of fact in relation to liability and quantum and in the last resort by a judge at the hearing of the action. It is of fundamental importance to both plaintiffs and defendants in relation to any dispute to clearly establish, on a factual basis, matters in relation to liability and quantum. In this regard, independent and qualified legal and financial advice from experienced forensic accountants working in the area of litigation support is required so that managers can make a clear assessment of their approach to the resolution of a commercial dispute as they would any other commercial decision.

Direct negotiation is the preferable approach to commercial dispute resolution. In the event that this does not succeed, parties to a dispute should consider mediation in preference to arbitration or resolution through the courts system.